Michael Parken

Vineyards around the world are witnessing the increasing impact of global warming on grape yields and wine quality.

A recent Nature The report found that 90% of traditional wine regions in the coastal and lowland areas of Spain, Italy, Greece and Southern California are at risk of disappearing by the end of the century due to extreme drought and more frequent heat waves.

For Australia-based Treasury Wine Estates (TWE), one of the world’s largest wine producers, sustainability is a key differentiator for its popular brands including Penfold, Lindeman’s and Wolf Blass.

In a one-on-one with The acquisitionMichael Parks, global director of sustainability at Australian winemaker Treasury Wine Estates (TWE), shares how the company is strengthening its sustainability practices to adapt to climate change.

Climate risk

The winemaking value chain starts with grapes in the vineyards, where climate change poses a material risk. Changes in vineyard conditions, such as temperature, precipitation, humidity and radiation, directly affect the ripening cycle and quality of the grapes.

Grapes that TWE sources come from vineyards in Australia, California, New Zealand, Italy, France and China through a combination of direct ownership, leasing, grower contracts and third-party supplies. For TWE, diversified sourcing mitigates the risks of vintage and price variation. However, it still can’t hedge much of the climate risk.

To maintain favorable conditions in the vineyards and ensure that grape yields remain unaffected, TWE is working with climate scientists to model various climate risks, including physical and transition risks, to enhance climate adaptability and resilience. “We’ve invested over the last two to three years to understand and really focus on the viticulture side of our business, because that’s the most exposed. And so we have our own climate risk model, and that uses a number of global climate models and datasets.”

While climate change is a global issue, local climate conditions are a relevant issue for TWE, as it sources grapes from a variety of locations. “Local factors such as topography and altitude and the specific microclimates are very important for us to make investment decisions,” Parks says. “We need to adapt to the climate to consistently produce good quality grapes in the future.”

Water

By breaking down climate issues into small and actionable components, TWE identifies water use as a material issue for its business and societal stakeholders. A study conducted by the company shows that approximately 97% of the company’s water use occurs in vineyards. Therefore, practices such as smart irrigation, on-site water recycling, as well as the upgrade and maintenance of irrigation infrastructures are identified as priorities for improvement to deliver the desired yield and quality. Meanwhile, the company invested US$165 million in the construction of a 254 megalitre dam at one of its vineyards in Barossa, South Australia, to improve water harvesting. This will help to increase water security and efficiency at the site.

Renewable energysources

In addition to optimizing water usage, TWE also sees increasing the use of renewable energy as a low-hanging fruit that will have a strong impact on its sustainability journey. As disclosed in its sustainability report, renewable energy sources accounted for 19.9% ​​of energy consumption in its global operations last year.

The goal is to increase the share of renewable energy sources to 100% by 2024. Bridging the 80% gap in one year seems a bit ambitious, if not impossible. But Parks is convinced it can be done.

This can be done by, for example, installing solar panels, purchasing green energy certificates and reducing the total energy demand. “If these approaches work together, we can reach 100% by the end of this calendar year,” Parks claims.

Sustainable financing

TWE’s sustainability initiatives are supported by sustainable financial instruments. In 2021, TWE converted a total of A$1.4 billion (US$949 million) of debt into a sustainability-linked loan (SLL), one of the largest SLLs in Asia Pacific and the first for a wine company in the region.

Parks emphasizes the incentive mechanism built into the SLLs. “Structurally, the SLL is set up in such a way that the sustainability performance targets will roll over and roll over,” he says. “Once we complete the existing targets, we would have new targets to replace the old ones.”

Shortly before the interview with Parks, the company’s SLL size actually grew to A$1.7 billion, reflecting the strong commitment of TWE and its banking partners to sustainability. “(SLL) is a really exciting way to integrate people’s investment decision-making and lower the cost of capital,” Parks noted. “As we get closer to 2030, the (SLL) market is likely to only get bigger, with higher standards such as having science-based targets.”